Cosan S.A. ADS

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to present the first quarter of 2021 Results Conference Call. Today with us we have Mr. Lydon Hikigimaren, Co-CEO, Mrs. Paula Kovarsky, Head of IR and ESG, Mr. João Astor Souza, Head of Finance, and Mr. Felipe Casari, IR Executive Manager. We would like to inform you that this event is being recorded and all participants will be in listening mode during the company's presentation. After that, there will be a question and answer session for industry analysts. At that time, further instructions will be given. Should any participant need assistance during this call, please press answer 0 to reach the operator. Today we have a simultaneous webcast that may be accessed through the company's website, www.cozern.com, and the slide presentation may be downloaded from there as well. There will be also an audio replay for this call available on that website. Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Cozern Management. and on information currently available to the company. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, school district conditions, and other operating factors could also affect the future results of CASEUS and could cause results to differ materially from those expressed in such forward-looking statements. Now, I'll turn the conference over to Mr. Felipe Cavalli, who will start the presentation. Mr. Cavalli, you may begin.

Good morning, everyone, and thank you for attending our conference call on COSERV's first quarter 2021 results. I'll be making a brief presentation of the quarterly results so we can have more time for Q&A sessions. First, I'd like to point out that Cozumel's corporate reorganization has been concluded by the end of this March. First quarter of 2021 results now reflect this new corporate structure. The consolidated numbers are all according to a performer view. The difference from the way we presented our results before is that Cozum's consolidated results now take into account 100% of room of figures for the entire quarterly period in addition to the expenses from Cozum Logistica and Cozum Limited, CDV, which were incorporated by Cozum SA. One important detail, for better comparison, the numbers from the first quarter of 2020 from last year are presented on the same basis, so it also incorporates rural figures. Now let's get into results. Brazil was hard hit at the beginning of 2021. The number of contaminations and deaths due to the pandemic rose to record highs. We honor and offer our support not only to the families of those who lost their lives, but to all health professionals and those working in essential services which includes our own team of more than 40,000 employees who remain at the front lines of such battle. Despite the worst scenario and increasing restrictions due to the pandemic, we managed to deliver strong growth in the quarter. Following our usual dynamics here on the presentation, let's begin with slide four that shows the operating results of high-easing for the sugarcane crop in 2020-21 year that closed in March. The investments made by high-easing to increase productivity, combined with drier weather, resulted in expanded volumes of crushing, agricultural yields, and sugar-equivalent production. Mixed production hit 52% for sugar, in line with high-easing sales strategy that prioritized the improved profitability of the commodity. As presented in most recent calls and days, high-easing has been on an important journey towards agro-industrial efficiency. As a reminder, our forecasted goal was to achieve R$800 million in gains per crop just by increasing productivity. During 2020-21 crop year, we already reached 270 million reais in gains in real terms. By improving the agricultural yields, Taizen increases production per hectare, resulting in gains of scale and diluting costs, especially in the sugarcane cutting, loading, and transportation operations. And here we are referring to management of process and expenses both in the field and in the industry, technology applied to area mapping, and optimization in the use of land, which reduces fixed costs from leases. Therefore, unit cash cost ex cosecana was 3% lower this crop. The investments were in line with the previous year. Now moving to the next slide. we will present the results for renewables, comprising ethanol and bioenergy production operations, as well as other products included in our portfolio of renewable energy. All ethanol sales increased both in the quarter and over the crop year, taking advantage of improved prices. The resale and trading operations was lower in the period, largely due to the reduced ethanol production mix in Brazil. Despite the lower volume sold, the improved sales prices resulted in increased revenues in this quarter and for the year. It is important to remember that Hyzen offers our diverse ethanol portfolio for various purposes in addition to fuel, which allows us to reach distinct markets, capturing higher premium due to lower carbon footprint of our product. Moving on to bioenergy. Higher power sales this quarter were offset by the drop in prices over the period. In the crop year, both the lower volumes produced and prices impacted net revenues. This last and favorable scenario, compared with the previous year, reduced incentives to originate bagasse, which is the feedstock for energy cogeneration. As a result, the adjusted EBITDA for renewables was below the previous crop. Moving on to the next slide, we will discuss sugar operations. Just to remind you that this section is comprised of sale of home and third-party sugar, applying Haizen's expertise and infrastructure to capture increased value through the value chain. We have been gradually increasing our direct sales to final customers, eliminating intermediaries to consistently improve returns from the sugar operations. volumes sold in this quarter were above those in the same period last year, however, with a slightly different dynamic due to lower concentration of sales during the interharvest. On the other hand, the exponential increase of resale and trading operations more than offset this reduction in our own volumes. In terms of prices, we are undergoing a cycle of record high sugar prices in VRL terms. The average price of sales was higher both in the quarter and during the year, which resulted in a strong increase of revenues. The adjusted EBITDA was also substantially higher, reflecting a more favorable scenario for this commodity. About sugar hedging, we continue to make progress towards hedging in Brazilian real terms. The uncertainty is related to the size of the Brazilian crop. And the signs of improving ethanol prices had a positive impact on the sugar prices, which hit historical highs with the potential for growing returns over the next coming years as well. Regarding the current crop year, closing on March 2022, Haizenha has already had 80% of the sugar directed through exports. And for the next crop, the 2022-2023 we have already had a little over 70%. In the next slide, our results of marketing and services, which includes all field distribution and proximity operation in Brazil, in addition to the downstream business in Argentina. Let's begin with our operations in Brazil. The increased restrictions due to the pandemic had a direct impact on demand for the auto cycle. with a 3% reduction compared with the same period last year. On the other hand, demand for diesel continues to be strong, with a 14% increase in the period, helped by our efficient sales strategy and demand from the agricultural sector. The aviation fuel sector has been shown progressive recovery, however, still well below historical volumes, having been strongly impacted by the reduced air traffic and by high easing commercial discipline. It is important to note that we have adapted our operations to meet this new level of demand, and we are ready to capture new volumes when we see an acceleration in the recovery of the sector, as well as the return of the international flights. Adjusted EBITDA for the preceding operation was 696 million reais for the quarter, higher quarterly and yearly. Once again, I must say that the contribution of our supply and commercialization strategies led to higher profitability in the period by capturing opportunities from prices dynamic over the quarter. In addition, this result also reflects our focus on operational efficiency and on management of expenses. Speaking of CapEx, we've maintained the level of investments compared to previous quarters. Investments in renewal and expansion of our own client network have been maintained at a strong pace in line with the plan of bringing best partners to our network. We are optimistic considering the business opportunities for the remainder of the year, in line with the guidance we provided to the market. Now, an update on our proximity operations, the group with us, our JV with Pensa. Since the opening of the first stores last quarter, we followed up with the opening to reach a total net addition of 65 stores over the quarter, combining Oxxo and Shell Select ones. Now, moving to downstream operations in Argentina, There were improvements both in demand and in profitability this quarter. Retail and B2B volumes grew both quarterly and year-over-year. Adjusted EBITDA in Argentina reached $63 million, expanded by growth of gasoline and diesel demand, as well as the improvement of operational efficiency and recovery of sales prices, contributing to a better return overall. Investments amounted to $27 million in line with the plan for the year. Combined marketing and services EBITDA amounted to R$1 billion during the first quarter of 2021. Now, proceeding to the next slide on gas and energy segments. Adjusted EBITDA for COMPAS grew during the period with an improved contribution from COGAS based on first efficient management of expenses, margin adjustments applied in May 2020, and increase in demand for natural gas, especially from industrial segment, mainly sectors such as ceramics, steel, chemical, and petrochemical. In the residential segment, volumes were slightly lower due to higher average temperatures in the period. The commercial segment continues to suffer due to the pandemic-related restrictions. Regarding COMPAS energy sales, EBITDA was close to zero due to price fluctuations during this quarter and market-to-market effect as well. COMPAS investments during the quarter reflect mostly coal-gas investments in line with the regulatory plan. We added 142,000 new clients this quarter actually, over the last 12 months. And Compass continues to develop its long-term strategy. We have some advances being made here. So, that special acquisition process is now on a buying stage. In regards to the São Paulo Regress Terminal, the commercial, operational, and construction agreements are in an advanced stage of negotiation as well. Now, moving on to the results from MOVE. We had a record quarterly EBITDA on move due to the increase in this volume sold, especially in the Brazilian operation. The business continues to react with benefits from the successful sales and supply strategy, always with a focus on maximizing value creation with a differentiated portfolio of premium products. Moving on to the next slide, let's speak of Rumo for the first time in this conference call. Since Humo had already their own conference call last week, I will summarize the main highlights here. Please bear in mind that we are talking about 100% of the operation results during the quarter. Adjusted EBITDA was R$832 million, a relevant increase when compared to the previous year. Main factors here were, first, the 13% increase in transported volumes, of which 16% achieved by Morgan in operation, despite the delayed start of the soybean crop. And two, the assertive commercialization strategy, resulting in a 6% increase in tariffs. Investments were in line with Romo's long-term plan. Around 40% of total capex was directed to the central network, whose operation started in March, five months ahead of schedule, despite many challenges in executing projects due to the pandemic of COVID-19. Now let's move to the next slide, with consolidated figures of Cozum on a pro forma basis. Cozum de Vítida was R$ 2.6 billion on a recurring basis. Once again, It is important to reiterate that this expansion reflects the robustness and complementary nature of our portfolio, supported by our team's execution capacity regardless of this scenario. Net profits continue to grow both on a quarter-by-quarter basis and year-over-year due to the improved operating performance of our businesses, combined with reduced financial expenses and tax credits at Congas. Next slide, we will talk about our financial results, highlighting cash flow and indebtedness. We worked intensely on our debt management and brought Cozum's consolidated gross indebtedness down 9%, with contributions from all businesses. It is worth mentioning here that Lumo prepaid the 2024 series of senior notes. On cash flow, despite the increased generation of operating cash, greater levels of investments during the quarter and payments to reduce the debt principle resulted in a cash consumption on the free cash flow to equity, in line with business's strategy. Average rent is slightly down in the period as a result of improved EBITDA. We expect a decrease of leverage to levels closer to 2.5 times the depth of EBITDA in the following quarters, with an improvement of EBITDA. Currently, the last 12 months EBITDA is affected by the more severe impacts of the pandemic over our operations. On to the next slide, we will provide you with a brief update regarding our EESG agenda. At the end of April, we published our 2020 Sustainability Report, both the full version and the pocket one, with a portal dedicated to the topic. As you are aware, here at Cozum, we see ESG with an additional win for economic as the fourth pillar of sustainability. In this report, we provide a deep review of our materiality matrix, enlarging the universe of stakeholders consultants. We connected these material topics with our strategy and also committed to concrete goals. We are engaged to fight climate change, looking to offer increasingly cleaner energy, as well as reliable and efficient logistics, in addition to continuously promoting diversity in our teams. I invite you all to access the materials available on our website. Moreover, Rumor recently issued at 1.5 billion reais in sustainability-looking adventures, and now 30% of its investments is considered green. At Cozum, we just approved our sustainability policy, which is also available at our ESG webpage. Before moving on to the next slide to close this presentation, let me address two important points. So we are back at the IBRX50 portfolio from B3, supported by increased trading volumes following our corporate reorganization conclusion. We did a one-to-four share split at B3, also focusing on improving further the liquidity of our shares and allowing individual investors to easily access our shares. Now let's move to the next slide with the guidance for 2021. Our guidance now brings yearly projections for RUMO, which were already disclosed by the business. There were no changes to the other business lines, and we reaffirmed our expectation of good set of results across the board for 2021. One important point, the numbers for renewables and sugar do not include the operational and financial information from BioSaf, since the conclusion of the transaction has yet to be completed or reached, which will likely happen within two months. With that, I close the presentation. Our entire team is here today with me, so our CEO, Luiz Henrique, as well as Paulo Kowarski, head of IR and ESG, João Arthur, and Ana Perina. Thank you.

Ladies and gentlemen, the Q&A session will start in a few seconds. Ladies and gentlemen, we will now initiate the questions and answers section. Please, each participant can ask up to two questions. If you would like to ask a question, please dial star 1. If at any point a question has been answered, you may remove your question from the queue by pressing star 2. Our first question is coming from Mr. Lucas Ferreira of JP Morgan. Mr. Lucas, your line is open. You may proceed.

Hi, Felipe. Hi, everybody. Thanks for taking my questions. I have two questions. The first one on the guidance, Felipe. The guidance is looking very conservative, especially for a move in Argentina. maybe also for renewables considering where our prices are trading. So just wondering if you can speak a little bit about why not resorting to guidance this quarter, why keeping it flat? I know it's just the beginning of the year, but the running rate of some businesses are already super elevated. The second question is about the loss on interest rate in renewables this quarter. If you can give us more details about that, how much was already devised, what to expect in the coming quarters in terms of facilities coming from the training side, any of those. Thank you. Hi, Lucas. Luis Guimarães here. Good morning for everyone. Thanks for attending our call. Taking your first question on guidance, I think it's always, we are living in a moment with volatility and some factors that we cannot control, like the pandemic and it's going to have any other impact. So we prefer to be conservative at this stage and ensure that it's attracting. Of course, if you feel that there is some significant changes in the economy, in the environment, we will revise our guidance we always had. I'm pleased that you feel that's conservative, but it's always an upside. For the business, it would be worse if you were here trying to justify why you were under the guidance. But we continue to be optimistic of the recovery of the market, but still a lot of volatility in all different sectors, so we prefer to maintain and stay hold on that. As soon as we have more confidence, we will definitely In terms of your second question, I think it's just to reinforce the new reporting methods and classification of high-easing. So you have sugar, which is a direct result of all the sugar operations in land and exports, and you have renewables, which comprise ethanol and power trading. And on this quarter, which was the end of the crop and the entire crop as a whole, ethanol has performed very well. We had a very strong year, both on our own products but also on origination. A lot of export, new markets, capturing premiums in markets where it was important, et cetera. Yes, we had a quarter where in the electricity area, we didn't perform as we expected. The electricity market has been very volatile on this first quarter with some once-in-a-century events from both the climate and also from some regulatory issues, and therefore we had not a good quarter on the electricity side. But ethanol was very, very strong. Thank you very much.

Our next question is coming from Mr. Andre Hashem of Banco Itaú. You may proceed.

Thank you for taking my question. Congratulations on publishing your first results in the new corporate restructuring. I have two questions. The first is related to ride-eating. It's pretty common, I mean, when we think about the new proprietary technology that you have, the EPG and biogas, the advantages of being a first mover And there's a difficulty that other players would have in replicating this. So, in other words, they're behind how much and behind what the rest of the industry is regarding these two technologies. My second question is related to Compass. Could you please provide us an update on how each of the individual lectures are going and when you expect them to be materialized? We're talking here about the REGAP terminal and all the other new projects. Thank you. Thank you, André. I appreciate your question. Let me start with Haydn. Yes, we've been investing for a long time in new technologies to enhance the value of our assets there and to be able to maximize profitability per hectare of biomass on top of sugar and 1G ethanol and cogeneration. And E2G, as you know, our effort for the last several years has materialized. We now have a scalable technology with a proven track record and a structured supply chain. And, of course, we will exploit that as the market allows and global demand for cleaner products we are seeing pick up. BioGuide, the same story. So we also be looking at how to transform something that was a byproduct, which is in-app, to something that's profitable. And again, we have made the development with partners. We have invested in the first large-scale plant that's operating. And again, right now, we have the confidence that can be replicable, pending, of course, market conditions, prices. and, of course, of faith. All these projects are very important, and we all have the discipline, as you know, not only in Haiz and all the companies that participate, in ensuring that we have sufficient demand and, in most of the case, firm contracts to start building new assets. So, of course, on the first two, we need to take some risks, but we have very confidence and we are the first mover In this market, we will evolve as the market allows. So technology is a key component of Haifa's proposition, not only on renewables, but we are doing a lot of work, as you know, on sugar, a lot of work on the marketing and service. Shell Box now is a big reality. It's over thousands of transactions today and is one of the largest transactions B2C e-commerce, if you compare to all the other e-commerce that exist in the country. So, we will continue to leverage technology for the growth of Faizi and all the companies in the investment platforms we have. Regarding Compass, it's come off the status, so the spectrum, the discussions With Petrobras continuing, we are seeing good progress, but, of course, you can only tell when it's finished and we get a final document. So we are progressing on that. Both teams are pursuing the definition for the agreement. Of course, it's not an easy transaction from the point of view of several assets, liabilities, and all the components of a transaction of these sides. So we expect success. to conclude that in due course, but there's no timeline to give you as a certain, because it depends on both parties reaching an agreement on that. On regards, we're also progressing. All the licenses have been issued, and we are waiting for the start of the construction as soon as possible. Perfect. Thank you very much. And again, congratulations on the results.

Our next question is coming from Mr. Thiago Duarte of BTG Factual. You may proceed.

Hello, good morning, everybody. My name is Paolo. First question, actually, quick ones here. First question would be on guidance. I mean, with the incorporation of RUMO and how you change the, you know, of course, the profile of the placeholder, can you Walk us through how you see your pro forma leverage standing. You're around 3.1 times now. So just for us to understand what level you consider to be ideal, considering the portfolio that you now have under Cozen's umbrella with the corporate restructure. That would be the first question. The second question, also discussing the guidance and the lack of changes in the guidance, particularly looking at the rising upstream division, you're not changing your crushing volumes expectations as, of course, we are all getting, you know, receiving useful and discussing the impacts of the drought. So just if you could comment a little bit on that. on where you see the risks to your cane availability this year relative to the rest of the market. And the third question is still focused on sugar and renewables. How you see, when you look at your own production volumes of sugar and ethanol, where you see your mix standing considering that you have So you have had a very high volume for sugar, but you also have a pretty attractive ethanol price in the marketplace right now. So if you could comment on that. Thank you so much. charlotte thank you i'll take the first one here uh in terms of the the guidance uh for the cousin consolidated so as i as i mentioned on the on the on the call we have incorporated the best from czz and from cozenogisca and as well from the rumo uh we have considered for this uh This quarter, the last 12 months at the DAC, which, again, we face a more severe impact of the pandemic on this last 12-month number, right? So as soon as we improve throughout the year, and as you see in the guidance, we're probably going to deliver improvement results across the board. So as soon as the EBITDA improves, we're probably going to reach about 2.5 times that EBITDA again. It's a pretty comparable level for us as a running rate. Thiago, thanks for your question. Good to hear from you. Regarding the guidance on crushing, again, we have several crops in our market. on our backs, and we know that you have some oscillation on the climate. We believe that we'll continue to deliver productivity. We know that the drought can have some effect, but we are confident that with the productivity gains that we had last year, we will continue to have this year probably a little bit less than last year because of the drought. And sugar content above average, probably not as good as last year, but above average, we will be able to deliver our guidance on that. This is why, again, we haven't adjusted, as I explained on the first question that was asked before, why we changed when we had the upside, and also when we changed, as you see, a more difficult environment in that sense, because we still feel that there is a lot to go through, as well as some of the work we are doing. Regarding NICs, I think we have two environments here. We have the Original high easing and the new high easing place, Biosurf. With the original high easing, we are confident that the mix will stay around what was last year, around 52%. We understand the back of the question, of course, is because ethanol prices are very good, very typical, right? So you see in April where price went up. rather than down, which reflects, I think, several issues that we've been talking with you on previous years, a firm demand for ethanol, another bill as a mandate, and again, another development of global supply and demand for sugar, and recovery of the auto cycle, et cetera. So we have more leverage and more flexibility than the bio-serve assets. that we could have more maneuver between sugar and ethanol. And, of course, we're going to be looking at the opportunity. And always remember that we can capture also some of the upside of the ethanol trade and the flows to the non-proprietary products and our commercialization, which you know we are very strong on that. So, all in all, we expect, as you know, strong prices for both products, which is good for the business. Also, opportunities for us to advance in future years. where profitability indicates is also good. And with the addition of BioServe, a greater flexibility in terms of our way to manage the mix. Tiago, let me just complement one thing here, just putting more color to what we've said. So, we may see the high impact on sugarcane availability, so probably looking at more as a low range of the guidance, right, for this crop. But definitely we'll see a compensation on the sugar equivalent production. That's what he mentioned about the productivity should be higher. Yeah, sugar content. So as of now, if you want to look at the guidance number, you may look at the low range in terms of sugarcane availability and corrosion. Thank you, guys. That was very clear. And, Felipe, just to follow up on the first question, would you say, when you talk about the two-and-a-half-time leverage, would you say for Cozen's portfolio as we have it today after the pandemic, corporate restructuring and the addition of room and so on. Would you say two and a half times is an ideal leverage, something that you guys should be pursuing over time? The reason I'm asking this is just to understand, you know, how we should think about, you know, use of cash and kept to our patients and so on going forward. Yeah, we are looking for the two and a half, Tiago. I think this is a good number. Of course, as you have always followed us, we will always try to be adjusted cycle, right? So if conditions we believe will be more tough in the future because of any event in terms of the markets we play or that we will take a more conservative view going forward. But with the visibility we have for the following years, where the markets are positioned, the supply and demand for each of the products that are important, the growth of the business that we are thinking in all the business, the new projects, et cetera. We believe that the good balance approach, as well as the profile of our debt and the type of debt we have, so we are very confident that this is a good place to be, maximizing the interest of the shareholders. Very nice. Thank you so much.

Once again, if you ask a question, please dial star one. This concludes the question and answer section. At this time, I would like to turn the floor back to Kazem for closing remarks.

Guys, again, thanks for your attendance for this webcast. Just a couple of messages here from the management. First, we continue to say thanks to all the magical staff. and the people on the front line in Brazil and the other countries we play. It's been a very difficult time, and we know that these guys and gals have made a big difference in terms of taking care of us and taking care of the people that are in need. And I'm sure, unfortunately, this will continue for a certain time until vaccinations widely spread. We as a company will continue to support several efforts, through the donation and availability of time from all the teams in terms of food supply, medical supply, and ethanol and alcohol gel supplies. We're doing our part. It's a time for solidarity and it's very important that the whole society supports the ones most in need in this time. Also want to thank our team, our over 40,000 people that have been every day supplying energy, and logistics with full efficiency, and we haven't stopped any of our operation in any place any day of the last 12 or 18 months. And we continue to do that as important to have for the society and for people to be able to move, receive the food here in Brazil and in several parts of the world. And to add, I'll say we are confident with the recovery. I think we are entering a good cycle. I think we have seen that in the U.S., certain parts of Europe, and certain parts of Asia. Vaccination clearly works, so we've seen the numbers going down. In every project, we have a critical mark of vaccination. Even in Brazil, with the age over 60, we've seen the numbers. So we are very confident that we have pickup in demand. We are seeing effect in certain places, like end of a war. So people want to go out, want to have fun, want to spend time with friends, family, want to travel, want to have mobility. what you eat out and what you consume. So with that, I think all our business will benefit from that because we are in the core of moving goods, people, and all the rest. So we are preparing for that. So ourselves, our dealers, our distributors, our partners, our constructors, our suppliers. We have engaged them from several months preparing for the recovery, and we expect even a lot of challenges supply chain. So you're seeing a lot of segments having difficult supply chain. If you're not prepared, you're not going to be able to cope with the recovery when it comes. So we are confident that we have done our homework. We are confident that we'll be there for our partners, distributors, dealers, constructors, etc., And we hope to have a good rest of the year. Of course, as we said, some volatility can happen. We can have always a third wave or other things. But I think the worst is behind us. And we work hard to deliver good numbers and surpass the guidance we have given to you guys and the markets and our shareholders. So thanks for your confidence. See you next quarter. And in the meantime, any updates, especially the transactions that are going on, as we update, we're going to continue to give that to you with full transparency.

Thank you. This direct concludes today's presentation. You may disconnect your line at this time and have a nice day.